The UK economy is likely to shrink by 10.2% this year in the wake of the coronavirus, according to new analysis by the International Monetary Fund (IMF).
The leading global organisation’s forecast suggests the pandemic will hit Britain’s economy much harder than much of the rest of the world.
Its World Economic Outlook on Wednesday forecasts a 4.9% decline in global output this year, in a far steeper downturn than the Great Depression of the 1930s. It had previously predicted a 3% decline in April.
“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF report reads.
The IMF said consumption and services dropped beyond expectations and described the hit to the global labour market as “catastrophic.” The economic impact is particularly “acute” on low-income households worldwide, threatening global progress in tackling extreme poverty since the 1990s, the report added.
Britain’s firms, workers and tax receipts appear set to suffer a greater hit than other advanced economies, which are predicted to see GDP slide by 8% on average.
The #WEO projections imply a cumulative loss to the global from the pandemic crisis of over $12 trillion economy over 2020 and 2021. Read the #IMFBlog on the latest #WEO https://t.co/fqM8iURHFv pic.twitter.com/0D5eSzZe7l— IMF (@IMFNews) June 24, 2020
The UK has already seen unemployment levels leap. Almost one in three workers has been furloughed with the UK government footing the bill for paid leave as firms’ activity has collapsed during lockdown.
The UK projection is worse than for Germany (-7.8%), Japan (-5.8%) and the USA (-8%), but better than France (-12.5%), Italy and Spain (-12.8%).
Global recovery is expected next year, though at a slower pace than previously forecast and the body warns there is more uncertainty than usual over its predictions. Global growth is estimated at 5.4% in 2021.
The IMF said growth even in economies with declining infection rates would be held back by persistent social distancing, “scarring” damage from the lockdown and lower productivity from greater workplace safety measures.
The forecast also assumes that financial conditions will not deteriorate, noting that the rebound in financial market sentiment since March “appears disconnected” from underlying economic prospects.